This week, the United States awaits the release of the October inflation data, a critical economic indicator that will shape market sentiment, inform policy decisions, and catch the attention of economists, policymakers, and traders. The Federal Reserve’s interest-rate policy outlook heavily relies on this consumer inflation data, which is crucial in determining the need for interest-rate hikes. Additionally, other economic reports and events, such as retail sales figures, speeches by Federal Reserve officials, a high-level meeting between President Biden and President Xi Jinping, and the possibility of a government shutdown, are expected to significantly impact market sentiment and policy choices.
Amid a trend of declining inflation since summer, economists remain cautious about the sustainability of this progress. Many experts believe that the improvements seen in inflation were merely the “low-hanging fruit” and that meeting the Federal Reserve’s 2% target will pose a challenge. Fed Chairman Jerome Powell has expressed concern about possible “head fakes” in inflation, emphasizing the central bank’s cautious approach. Economists predict a modest increase of 0.1% in the headline Consumer Price Index (CPI) for October, mainly driven by a decline in gasoline prices. On a year-over-year basis, inflation is projected to rise at a rate of 3.3%.
October Retail Sales
The outlook for consumer spending remains uncertain, with experts anticipating a dip in retail sales for October, showing a decline of 0.1% compared to the substantial increases of 0.7% in September and 0.8% in August. Despite above-average job growth and rising incomes, economists speculate that consumers may be exhausting the excess spending power accumulated during the pandemic. The performance of retail sales in October will provide valuable insights into the strength of consumer spending and its implications for the overall economic outlook.
Speech by Chicago Fed President Austan Goolsbee
In the series of public remarks by Federal Reserve officials, all eyes are on the speech by Chicago Fed President Austan Goolsbee at the Detroit Economic Club. Goolsbee, who joined the Fed earlier this year, holds considerable influence, and his remarks will be closely monitored. Known for his accurate predictions on inflation and unemployment in recent speeches, Goolsbee’s views add to his credibility. Moreover, speculation about Goolsbee’s potential candidacy for the role of Fed chair in the future enhances the significance of his opinions.
Biden-Xi Meeting at the APEC Summit
President Biden and Chinese President Xi Jinping are scheduled to meet for the first time in a year at the Asia-Pacific Economic Cooperation summit in San Francisco. While the immediate impact on the market may be limited, the Biden administration aims to establish lines of communication and deliver important messages to President Xi. The increasingly strained economic relationship between the United States and China is likely to be a key topic of discussion.
Threat of Government Shutdown
Friday marks the deadline for Congress to pass legislation to maintain government funding and avoid a shutdown. House Speaker Mike Johnson proposes a two-step government spending plan to extend operations until early next year. Moody’s Investors Service has recently downgraded the U.S. credit rating outlook to “negative,” adding urgency to the need for a congressional resolution. However, market analysts believe the probability of a government shutdown has slightly decreased, given the interest of House Republicans in avoiding market skepticism by demonstrating their ability to handle government funding continuation.
The October inflation data remains the primary focus of Washington’s economic agenda this week, given its significant implications for the Federal Reserve’s interest-rate policy outlook. Additional attention is directed towards retail sales figures, speeches by Federal Reserve officials, the meeting between President Biden and President Xi Jinping, and the looming threat of a government shutdown. The outcomes of these events and reports will shape market sentiment, policy decisions, and economic expectations in the weeks to come.